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The Structure of Florida’s Economy and Educational Attainment

Authors: Dave Denslow; Jim Dewey

Florida specializes in industries and occupations related to growth and to providing services for retirees and tourists. That would be no cause for concern but for two things. First, the influx of retirees and tourists can vary widely, causing large swings in employment. The recent housing bubble is an extreme example with damaging effects visible all over the state. Second, many of the jobs created pay little and require little education. As a result relatively few of Florida’s young people, especially young men, have college degrees. The figure below, based data from the 2010 American Community Survey, shows the share of men and women with a bachelor’s degree or higher for the U.S. and Florida.

The most striking number in this figure is the low share of Florida’s men 25 to 34 who have college degrees—only 21.6%.

The most striking number in this figure is the low share of Florida’s men 25 to 34 who have college degrees—only 21.6%. Partly, this reflects that nationally men are now less likely than women to attend and graduate from college. Unless this pattern reverses, and despite the rising share of women graduating from college, as those currently 45-64 retire they will be replaced in Florida by entering workers who are less likely to have a bachelor’s degree. Unfortunately, this coincides with the arrival of the global knowledge economy.

Percent With a BA by Age, 2010

It is becoming increasingly clear that variation in the share of workers with talent and high educational attainment is the major source of variation across cities in their economic growth, not surprising in a knowledge economy in which ideas have more and more become the source of wealth. Innovation is combinatorial. New ideas are formed by combining existing ideas. As an example, the iPod combines micro hard drive storage, the lithium ion battery, the LCD display, the DRAM cache, and signal compression (the fast Fourier transform). New products and processes arise from the interaction of creative and trained scientists and engineers who share their knowledge of the frontiers in their various specialties.

The skills of other young specialists enhance the productivity of those with whom they work. As a result, the gain in a city’s economic output from a college-educated worker is larger than that worker’s increased income from having a degree. This has been shown by a cascade of recent studies. Most of their authors are academics and might reasonably be suspected of bringing an unconscious bias to their work. For that reason we turn to studies by the New York Federal Reserve1. The New York Fed’s main interest is financial markets and, recently, in how defaults in exotic mortgages nearly destroyed them. Thus, they care about what causes variations in economic growth and house prices across cities.

Having one more worker with a college degree instead of only a high school diploma boosts an urban area’s output by approximately $100,000 a year.

What they found is that the major source of that variation is differences in the share of the work force with a college degree. Having one more worker with a college degree instead of only a high school diploma boosts an urban area’s output by approximately $100,000 a year. About $35,000 of that is extra pay for the worker with a degree. The remaining $65,000 goes about half to other workers and about half to the owners of firms and land. A worker with a degree makes his co-workers, as well as the machines, buildings and land he and they use more productive. Nearly everyone gains from these spillovers, even high-school dropouts who earn more per person because they are a smaller share of the overall supply of labor.

It is also clear that cities are diverging in their shares of college-educated workers. Cities that are knowledge centers are moving farther and farther ahead of the others. College-educated workers attract college-educated workers. Partly, this is because they want diversified opportunities and good job matches. Also, the more talented their co-workers, the faster their pay will rise. Studies show that college graduates who move to a city with a larger share of college graduates initially earn no more, but as they learn from others, their pay rises rapidly. Cities are diverging because college graduates draw more college graduates.

It seems to us the most important goal of economic development and education efforts in Florida is to foster creative and high-tech jobs that will: a) encourage young people who, for family or other reasons, intend to spend their careers in Florida to graduate from college; b) attract more young college graduates from elsewhere by offering them better careers; and c) raise the wages of workers without college degrees. Florida’s young people who wish to have high-paying jobs as scientists, engineers, or managers and who also wish to work where they grew up should have the opportunity to do so. If they want to stay in Florida but decide the state’s limited job opportunities offer little reason to pursue their professional dreams, talent is wasted. Moreover it seems likely that having more young managers, engineers, and scientists around improves the quality of local schools, which attracts more families headed by young professionals and eventually produces more high-school graduates who will go to college. As examples of the strong presence of engineers, we note that the high school graduation rates are 93% in Brevard County, Florida and 89% in Los Alamos, New Mexico. The Huntsville Alabama school district sends 84% of its graduates to post-secondary education.

[1]See the following Federal Reserve Bank of New York Staff Reports: Jaison Abel, Todd Gabe, Adrienne Ross, and Kevin Stolarick, “Knowledge in Cities,” September 2010. Jaison Abel, Ishita Dey, and Todd Gabe, “Productivity and the Density of Human Capital,” September 2011. Jaison Abel and Richard Deitz, “Do Colleges and Universities Increase Their Region’s Human Capital?” October 2009. Jaison Abel and Todd Gabe, “Labor Market Pooling and Occupational Agglomeration,” October 2010. Jaison Abel and Todd Gabe, “Human Capital and Economic Activity in Urban America, February 2010. Also see several papers by Harvard economist Edward Glaeser and various co-authors. Examples readily available on his web site include Edward Glaeser, Giacomo Ponzetto and Kristina Tobio, “Cities, Skills, and Regional Change,” March 2011, and Edward Glaeser and Joshua Gottlieb, “The Wealth of Cities: Agglomeration Economics and Spatial Equilibrium in the United States,” February 2009. The Philadelphia Federal Reserve’s analysts have produced several papers on interactions of skilled workers at short distances, available on the web. A recent one is Gerald Carlino, Jake Carr, Robert Hunt, and Tony Smith, “The Agglomeration of R&D Labs,” September 2011.

In 1997, Mississippi’s gross state product per non-farm employee was 30% below Florida’s, but by 2012 the two states were even at 87% of the U.S. average. Is this an ongoing trend, a new lower level that will stabilize, or an aberration?